ONGC says it's for stock split before follow-on public offer

NEW DELHI: State-run explorer Oil and Natural Gas Corp has suggested to the government for a two-for-one share split ahead of a follow-on share sale, Chairman R.S. Sharma told reporters on Monday.

The petroleum ministry has announced its decision to divest 10% of government equity in IOC, the market leader in refining and marketing, and 5% in ONGC.

In an exclusive interview to ET, Mr R S Sharma chairman and managing director of ONGC said that the company had made a bonus issue in 2006 when shareholders were issued bonus shares in the ratio of 1:2. "The investors' expectation for a bonus issue is natural and reasonable and the board will look into it," he said. With the share price hovering around Rs 1300, there are expectations building up for a stock split. "We would like to broaden the shareholding base," he said while adding a word of caution that a formal decision will depend on the board and the owners, the government.

ONGC had given a 5% discount in 2004 when it floated its IPO which has yielded the highest ever divestment revenue of more than Rs 10,000 crore for the government. "I would strongly plead to the government to adopt the same strategy of offering a discount to retail investors and the employees this time too," Sharma said.

Although there is no official word, a senior petroleum ministry official said that there is a strong case for considering a bonus or stock split for ONGC as it would help widen the equity base and make the stock more liquid.

ONGC and OIL, the two government owned oil producing companies have to share the subsidies that have to paid to oil marketing companies for selling fuel at artificially low government controlled prices. But the government's recent decision to part decontrol fuel prices should come as an upside for ONGC investors.

The other sticky area that will pose concerns for investors is to with the company's track record on discoveries in the recent past. ONGC, has been able to arrest the decline in crude production from some of its major fields crude oil production is set to increase, Mr Sharma said. " Gas production too is set to rise to about 100 million cubic meters from the 60 odd million cubic meters now," he said.

Post divestment, the government's shareholding in ONGC will come down to 69.14% from 74.14% currently.